interview. it's wednesday, february 17th, and "squawk box" begins right now. live from new york, where business never sleeps, this is "squawk box." all right. good morning, everybody. hi. welcome to "squawk box." i'm brian sullivan along with becky and mike santoli in today. joe and andrew are both off. here are the big stories we're watching for you today. venezuela's oil minister is in tehran meeting with officials from both iran and iraq. the latest report suggests that iran will not join in a deal between saudi arabia, russia, and other producers to freeze oil output. iran's opec envoy calling a freeze illogical, arguing the current drop in prices was caused by other producers lifting output while iran remained under sanctions. oil is helping your stock investments. at least the futures this

morning. futures are indicating a slightly higher open for the markets. but all that could change through the day because you have got a lot of economic data crossing all morning long. the january producer price index out at 8:30 a.m. eastern. producer prices are forecast to have slipped last month, primarily reflecting lower oil prices and a stronger u.s. dollar. also at 8:30, look for january housing starts and building permits. at 9:15 a.m., you get the january industrial production numbers. then later on this afternoon, the minutes from last month's federal reserve meeting at 2:00 p.m. eastern time. and there's an important corporate story taking shape today. a federal judge is ordering apple to help the fbi break into the cell phones used by one of the san bernardino shooters. court papers show that apple originally declined to provide help to investigators. they need help because too many failed attempts to unlock the iphone without the proper security code will trigger that

apple fail safe feature that erase all of the phone's contents. apple plans to fire the order. we just heard from the apple ceo in the last couple of hours. in a letter to customers, tim cook calls the order, quote, dangerous, saying the government wants to create a back door around iphone encryption. cook argues demand is unprecedented and warns the implications are, quote, chilling. >> this is a little difficult to get your head around. while you understand the privacy concerns on situations like this, this is a unique situation where terrorists were involved and american lives were lost. i think he's going to have a hard time defending that. >> if you're tim cook, it becomes precedent. >> it becomes precedent, but this is not a winning position. you look at how people feel about these things, sure, do i want my privacy protected? yeah. do i want terrorists' privacy protected? no. >> first of all, is this going to crack the case? >> we don't know. >> 20 years ago, how are we

solving cases like this? >> the phone users and all the apps, everything tracks everywhere we go and what we do anyway. >> do you feel like you have that much privacy to begin with? >> the victim's families have rights as well. >> well, here was a story, big talker from yesterday. neel kashkari gave his first speech as minneapolis fed president yesterday. he shocked fed watchers and the financial industry. kashkari called on lawmakers to take radical action to reign in banks and protect taxpayers, including breaking up the nation's largest banks to avoid bailouts if necessary. >> i believe we must begin this work now and give serious consideration to a range of options, including breaking up the large banks into smaller, less connected, less important entities, turning large banks into public utilities by forcing them to hold so much capital they virtually can't fail with regulation akin to that of a nuclear power plant. >> kashkari, of course, worked

at the treasury department during the financial crisis where he was an architect of the bank bailouts. neel kashkari will join us at 6:30 a.m. eastern today. >> let's get a check on the markets this morning. take a look at the futures and remember you're looking at markets that are coming off two days of gains. if they put together a third day of gains, this will be the first time that's happened in 2016. this morning you see some green arrows. the dow futures indicated up by about 65 points. s&p futures up by about nine. the nasdaq up by 17. the dow is up 3.4% just in the last two sessions. the s&p is up by over 3.6%. you're still looking at markets in correction territory from the highs they hit last may. take a look at what's been happening in europe with some of the early trade there. strong green arrows across the board. the cac in france up by 1.9%. overnight in asia, you saw that the nikkei was down by about

1.3%. the shanghai composite was up by just over 1%. the shenzhen composite was up by about 1.4%. take a look at oil prices, which yesterday dropped substantially after all the talk that was out there about opec potentially limiting its production along with russia. people thought, great, you limit your production at these levels and it still doesn't get you anywhere. that's why oil sold off yesterday. you can see things picking back up today. gain of just over 2.2% for wti, which is sitting just at 29.68. for terms of the ten-year, take a look at the treasuries. yesterday the ten-year note hitting a high of 1.83%. that was the highest level in over a week. this morning, the yield is just back under that. dollar index hit its highest level yesterday in a week. dollar-yen is at 114. gold prices, which plummeted

yesterday, they were down about 2.5%. down another $3.80 right now. . for more on the trading day ahead, dom chu joins us with the market checklist. >> good morning. there were a number of items on yesterday's trade that are giving some of the bulls at least a reason for optimism. let's start here with the s&p 500 overall. just to take a look at over the course of the past week, we seem to have found some stability. we're up about 2.5% time over that time. on a year to date basis, still very much to the downside. if you take a look overall with the russell 2000 small cap index versus the overall s&p 500, you also see this kind of an interesting theme develop. the small cap index has been underperforming, but lately over the last couple days, we've seen that white line do better than the large cap stock index. perhaps a good sign for some of the bulls out there. transportation stocks as well. keep an eye on those guys.

they've been severe underperformers. over the course of the past week, dow transports have started to show a little outperformance. perhaps a good sign for those bulls out there. lastly, let's point out the trading relationship, the correlation between oil and stocks. we've talked about it a lot over the course of 2016. look at this. we've seen the s&p 500 hold up relatively well. then oil prices, despite their little tick lower over the past couple days, stocks have still held up. does this mean a change in trend? ing oil be breaking apart from stocks in maybe that trading relationship is breaking down. just a handful of things. although, brian, i will point out the bears still say this rally has not been on great volume. we'll see how it shakes out. >> all right, dom chu. great analysis there, buddy. let's get more into your market discussion with your next guest. steven reiss from jpmorgan and darrell kronk from wells fargo.

steven, you heard dom's analysis. we could have three days of gains, which used to not be a big deal. this year, seems like kind of a big deal. oil has gone the other way. do you think that oil has finally stopped leading the equity market? >> i don't think oil volatility has ended. i don't think the overall volatility we're seeing in the market has ended. it is encouraging to see some stability. i think sentiment had gotten too negative across the board. people worried about a recession, the fed, about china. the list is long. i think what we see is a lot of decoupling between parts of the market where the fundamentals have been quite strong. looking at the more domestic sectors. those are leading the market on the downside this year. they're down about 8% to 9% despite delivering positive earnings growth. i think that's the opportunity to find these areas where we've seen the decoupling between the good parts and bad parts. i don't know if oil is done, but it's encouraging. >> if oil is not the most important part of the market now, maybe it still is, but let's assume it's not.

what would be? >> i think where earnings growth comes from. this will be the second quarter in a row if you include energy that you get negative earnings growth, which is this profit recession everybody talks about. so we need to see in q-1, q-2 kind of a resumption of confidence in the business sector to spend. that will drive earnings growth. when you look at places like technology and consumer discretionary and look at the earnings reports, earnings growth is 10% to the positive there. there are sectors of the economy -- not all sectors are created equal. >> is that because they have pricing power and revenues are going up? >> i think we're seeing good volume trends on health care. you have to think these sectors aren't tied to what's happening in china or the oil markets. right now the market is being

driven by sentiment. >> but we have looked at the u.s. worst quarter for company earnings reports since 2009. >> well, it's the industrial recession. it's the negative impact on the energy sector. i think that probably lasts for another couple quarters. as you get into the second half of the year, even if oil doesn't move from here, the comparisons get easier. also the dollar, big negative last year, big negative now. >> one of the issues is we've had this long period of really no progress in the markets. we were trading last week at levels we first got to in december of 2013 in the s&p 500. yet, the market as a whole hasn't seemed to get any cheaper. the earnings growth has flattened out just as stocks did. where would you look? you have things like the dow transports up year to date, many of them. so we're just seeing essentially a reversion trade to what didn't work last year. >> i think you are seeing some of that, mike. you're getting a buy of some of that value that was created

towards the end of last year. but i still think you've got to look at sectors that can really grow topline earnings growth or topline sales revenue. i think that's still in the consumer orient eed spaces. from a value standpoint, we like industrials today. we think the value is there. we do think energy is close to bottoming. it's interesting when you look at energy three, six, and 12 months after it bottoms, the average reversion over the last seven oil price corrections has been 35, 58, and 73%. even if you took $26 last week as the bottom to oil, you're probably talking upper 30s to lower 40s just on that reversion correction, which would help earnings and drive us back. >> but it also put about half the oil industry out of business. >> which would be good for long-term prices. >> i think what i hear the most,

and maybe you guys can confirm this, from some of the guests we've had or people i talk to is the markets have doubled off the 2009 low. if you stayed in the market, you've gotten your money back. what's the reason to own u.s. stocks? we've had a heck of a five to six-year bull run. last year it obviously petered out. >> if you jump in and out, you miss the two-day trends. you miss the 3.4% the major averages picked up. >> agreed. and there's some stat which is that half the gains over 50 years are made on 90 trading days. that's it. so i understand you have to be always invested. whenou look around the world, why not go after a south america, which has been walloped, a europe, which has been walloped. hope they're the next america. >> it's tempting, but ultimately we prefer visibility of growth. right now we think we have that in the u.s. the markets disagrees because it's focused on the negatives.

>> i definitely see the idea of dividend yields in excess of bond yeeds. you're kind of saying stocks look cheap relative to something i think looks really expensive. is that all we have right now? especially with credit markets not really encouraging any real great valuation. >> growth companies with 3% to 4% yields in the domestic sectors look very attractive. a lot of people were negative because they thought rates were going to rise. that hasn't happened. if you can get 3.5%, 4% yield with companies with good growth, i think that's a smart strategy. >> and you have valuations back down to 14 to 15 times, which is very reasonable on a long-term basis. the 30-year median average of the s&p multiple is 17.6. so if you take that back to a 14, 15 times multiple.

we think it's much cheaper than that when you look at where earnings -- even a subdued eps number for 2016. >> i like the dividend analysis. my only concern is are dividends going to stay at that level? obviously energy, they've been cutting or eliminating dividends nearly every day. >> who did we see yesterday? there was somebody in the commodities sector. >> anglo american, which had its credit rating completely walloped. >> you still have 60% of the s&p 500 now that have a dividend yield that's higher than the ten-year treasury. even if you include some pretty subdued estimates for what you expect for energy earnings dividend cuts. so you are getting, in many cases, especially in some of those sectors like industrials, even in the staples area and discretionary, you're getting 3%, 4% dividend yields. >> you femael comfortable those will stick around. >> absolutely. and that's not including what

you expect for energy dividend cuts. you're talking about core segments that have lots of cash on the balance sheet, decent earnings growth, a fair multiple. i think, yes, it's attractive right now. >> definitely want to stay selective within the dividend space. we like consumer staple dividend yields. look for a low payout ratio that can go higher. >> when you say staples, maybe you don't want to give individual names, but a company like a pmg or kimberly-clark. not sexy but steady. toothpaste, toilet paper. >> they're not going to see a lot of volatility if the global economy slowed down. the dividends are still attractive. >> is it better now to be -- we always heard for years, you want to be in a global company. the world is global now. you want to invest in companies all over the place. we've seen some downside to that theory. if europe tanks or south america tanks, suddenly companies that got exposure around the world don't necessarily look as

attractive, especially when they convert it back to u.s. dollars. >> the double whammy of a strong u.s. dollar last year as well as slowing emerging market growth. >> do we still want to macro view or look a little more homeward? >> we would prefer to look more home bound. i think some companies that have global exposure, if you look at how they've been penalized over the last 12 months, i think a lot of that is getting priced in. definitely a homeward bias, but there are opportunities for global opportunities. >> we need simon and garfunkel's "homeward bound" for a theme song. stephen and darrell, thank you guys. you got up early for us. we appreciate it. >> thanks very much. >> we go from talking about some of the dogs of the dow to some of the show dogs in town. there's a new top dog in town.

c.j. is a 3-year-old german shorthaired pointer from california. it won top honors at the westminster dog show last night. this dog is only the third of his breed to win best in show. there's no cash prize, but c.j. does get a polished pewter dish, and he'll be appearing on nearly all the net wok morning shows today. he also gets to visit the observation deck at the empire state building. hey, that's a big deal. this dog is going to be well known. >> that is a beautiful dog. they take a lot of effort. you better want them. >> high maintenance? >> just get them outside. like about two hours a day. >> when we come back, new minneapolis fed president neel kashkari is a familiar face for "squawk box" viewers, and he made some big waves yesterday in washington, calling for a breakup of the too big to fail banks. he'll join us in a few minutes in his first television interview since taking the job. a number. s

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welcome back, everybody. right now it's time for the executive edge. the food and drug administration is out with some new guidance on the zika virus today. the agency now saying that anyone who has been exposed to

the virus or traveled to areas where zika is actively spreading should not donate blood for at least a month. this also applies to anyone with a sexual partner that's travelled to those areas. in that case, they say you shouldn't be donating blood for three months. there have been no reports of zika entering the u.s. blood supply. mosquitos are by far the main way zika is spread. most people who have it never even know, but emerging evidence is linking the virus to some severe birth defects. we're going to talk more about the zika virus with dr. scott gottlieb this morning. >> meantime, harvard professor and former treasury secretary larry summers making a case for killing high-denomination notes like the 500 euro note and the $100 bill in america. the main reason is the link between these bills and crime. illegal activities can be easily facilitated because these bills

are so much lighter to carry. >> you wonder what plan b would be if your business is in transporting suitcases full of $100 bills. that's the idea. >> bitcoin. >> yeah, there you go. interesting. well, speaking of money, the nfl disclosing compensation for commissioner roger goodell as part of its obligation as a nonprofit organization. goodell had a $3.5 million base salary in 2014, but he also received a bonus of $26.5 million. additionally, he received $3.7 million in pension and other deferred benefits. that's a total of $31.4 million in 2014. in the nine years in which goodell's salary has been disclosed, he's averaged a $20 million a year at a total of 180.5 million over those four years. 2014 will be the last year they reveal goodell's income because

they're giving up their tax exempt status. >> also, hershey's confirms carat cake kisses for easter. they're going to have to sell me on that one. the seasonal flavor will be sold exclusively at walmart. when we come back this morning, new minneapolis fed president neel kashkari. he wants to break up the banks that he says are still too big to fail. he will join us next. right now as we head to break, take a look at yesterday's s&p 500 winners and losers.

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all right. welcome back to "squawk box" on cnbc. we are one, two, three -- well, we're first in business worldwide, anyway. if you're just waking up, let's get you up to speed on where the major markets are trading and futures are trading higher. we could be in for three straight days of gains. the dow jones industrial average actually indicated up 71 points right now. not so much kind of a wallop

day, but still good considering the way this year has started. to get three straight days of dpan gains, if we get them. let's check the overseas markets in europe. the german dax up 1.75%. the cac in france up 2%. and the italian market up about the same. it was a mixed picture in asia overnight. stocks in japan and hong kong fell by about 1%. stocks in mainland china were up more than 1%. let's take a look at the price of crude. this is the big story. the news that we talked about yesterday morning about a possible output freeze apparently is coming to fruition. saudi arabia, russia, venezuela, qatar agreeing to freeze output. however, two big caveats. number one, freezing output at january levels, which is one of the highest output marks in the world, and number two, iran this morning, according to reports, calling any kind of a freeze, quote, illogical because they want to increase output, saying if we freeze now t freezes us

out because we were in lower production during the sanctions. either way, crude oil up a little bit. becky, i think you pointed this out yesterday. we're still below where we were a week ago. this big opec bounce is a weak high. >> on the other side of that is we're 10% above the lows of last week, even though people were disappointed it wasn't production cuts. you can play it either way. >> i agree with your analysis of what happened overnight. i just can't figure out why it's up 2%. it's not just the deal that sounds illogical but just the markets themselves. >> markets that have gone down enough take everything as a reason to go up. honestly, it's not more complicated th ed than that. >> and i don't know if our viewers care, but i'll say it anyway. the oil market has suddenly become the batter grouleground inexperienced oil folks. there are only five or six days, somewhere around there, where we haven't had a smaller than a 3%

or 4% move in oil. oil has been exceptionally volatile. the number of contracts outstanding has gone up. you have a lot of short positions. you have a lot more activity in the futures contract. we're going to see a very volatile oil market. >> the market is just going to chop up the new guys basically. another thing the market is going to be watching today, minutes from the last fomc meeting will be released this afternoon. late yesterday, we heard from boston fed president eric ros rosengren. he adds it would take a grimmer economic picture to prompt a rate cut. we'll get a read on inflation at 8:30 a.m. eastern with the producer price index. expecting a decline of 0.2%. >> neel kashkari was in charge of overseeing the t.a.r.p. program during the 2008 financial crisis. he's now making headlines again, saying the issues surrounding too big to fail still exist and

there's much more to be done. joining us now is neel kashkari, the newly appointed president and ceo of the minneapolis federal reserve. long-time friend of "squawk box." neel, great to see you today. >> great to see you, becky. great to be back. >> you did not come into this job quietly. you have created quite a stir with the news you've already been making. we earlier compared it to what sandy wile told us several years ago when he said the banks needed to be broken up. the difference with what sandy was saying at that point was that he thought that wall street and investors would value the banks more highly if they were broken up and were smaller. that's not what you're saying. >> that's not what i'm saying. we've made a lot of progress since the '08 financial crisis. the dodd-frank reform act made progress. the banks are stronger. they have more capital, deeper sources of liquidity. when i think about the last crisis, i asked myself f we had the tools then that we have now, would we have used them? would we have actually haircut bondholders in a stressed economic environment or a crisis environment?

to me, the answer is no way. we never would have done it. so i want to be honest with the american people that, yes, progress has been made, but if we have a stressed economic environment and multiple banks are in trouble at the same time, the government is going to have to step in and bail them out. i don't think that's an answer that people are going to find acceptable. so now is the time to consider more transformational solutions, break up the banks is one of them. some experts have advocated turning them into utilities or taxing leverage across the financial system. >> do you agree with the idea of basically turning the banks into utilities? i thought it was something you were advocating yesterday. >> well, what we're doing in minneapolis is we see a lot of experts have put out a lot of transformational plans. in my view, they haven't been given serious consideration. they're transformational, and that can scare people. what we want to do is bring the experts together and say, put your plan out there. we're going to bring in experts to debate it, look at the pros and cons.

at the end of the year, we're going to use our judgment, put that together, and present to the public a plan that we think can address this once and for all. >> one of the risks of breaking up the big banks is that it leaves the american financial system behind many other nations at this point. ten of the biggest banks in the world, only a few of them are american banks. banks, i believe, offer a way to growth. they allow jobs to be created. they finance a lot of the huge projects that we need financed. you think there's a problem with the banks we have at this point, or do you think they -- i guess to you agree with that train of thought? you come from goldman sachs. you've seen what the banks can and can't do. you think there's a good purpose they're serving? >> there is. there's no question. there are economies of scale and scope with banks, but there are also costs of having these giant banks. if we were to restructure our financial system, i believe small and midsize banks would grow to fill some of that void. if other countries want to take huge risks with their financial

systems, we can't sympttop them. we should do what's right in our country. create one set of rules, and every bank in america that operates needs to follow those rules. our biggest blue chip companies do business in hundreds of countries around the world. they also manage hundreds of parts suppliers. if they can manage thousands of suppliers, can't they manage a few more banking relationships? i just don't find that argument compelling. >> there are a lot of people who look at it and say the reason that we have slow growth, the slow growth we've seen at this point s that the banks have been hampered to this point. granted, a lot of progress has been made. our banks are in much better shape than the european banks. we've seen what's happened the last few weeks. the largest constitutions are smaller and less complex with triple the liquidity. goes on to point out that we are in better shape at this point. if you continue to additional

regulation on top of the banks at this point, doesn't it risk hurting our growth even more? hurting our gdp potential. >> i'm sensitive to that point, but i think community banks and small banks are being caught in the umbrella of what we're trying to do to stabilize the biggest banks. in my view, if we actually took transformational action to stabilize the biggest banks, make sure they're secure, maybe we can relieve some of the regulations on some of the smaller banks that weren't part of this. >> that's interesting. i've heard time and time again from the community bankers that it's ridiculous. they can't continue to exist. you can't keep up with the regulations. instead of stripping back regulations, you're saying additional regulations. >> in some places where the rirv risks are concentrated and perhaps we can relieve it in other places. in the late 1980s, a thousand small savings and loans failed in the crisis. that's devastating for them, but there was no risk of an economic collapse. when the tech bubble burst in the late 1990s and 2000, that was devastating for silicon valley. again, no risk of an economic collapse. we need our biggest banks to be

able to make mistakes because they will make mistakes. everybody does. without requiring a taxpayer bailout or without causing economic devastation for the country. and we're not there yet. >> so what happened? tell our viewers why, before the financial crisis, nobody said a word. we blow up. now the banks are bigger than they were then, to your point, even with dodd-frank. how did they get bigger? >> in the middle of the crisis, we, the federal government, and i was part of that, were forced to support consolidation as a band-aid. at the time, we knew we were making the too big to fail problem worse long term, but we had no choice. >> you did know that? >> of course we did. but we also knew we had to stabilize the crisis because, look, even with the bailouts, the economic crisis cost many trillions of dollars in devastation to the american people. lost income, lost jobs, lost wealth. that's with the bailouts. if we'd allowed the financial

system to collapse, it would have been worse. >> but it wasn't all the banks. much it came from places like aig, which were unregulated before. if you clamp down on the banks and say they can't get bigger, my concern is you have a shadow banking system that cops up rop other areas. >> i agree. some of the things we're looking at is to tax leverage throughout the financial system. if you clamp down in one area, just as you say, it springs up somewhere else. we need to deal with that too. we need transformational solutions. going down this default path is not going to get it done. >> what about the idea that too big to fail also means too big to hide. we have all the largest banks representing a tremendous percentage of our total banking system in five or six constituti institutions. you know where they are. isn't that a shortcut to getting the more stable system that we're all seeking? because you're starting out from

a perspective of saying i forecast down the road in a cries is we won't have the political will to do what we say we're going to do. >> i think there's merit to that argument. that would lend it to the utility model. you treat them like utilities. there's a lot of merit to that. i'm not prejudging this. again, i'm not saying we necessarily have in minneapolis the best answer. we're reaching out to experts across the country and saying we want to give your ideas the consideration that they deserb and they think bring them forward to the country. >> what do you say to the idea that it makes america much less competitive? >> i don't find it compelling. again, i think our biggest companies can handle dealing with more banks. again, if other countries want to take big risks with their economies and financial systems, they're free to do that. we need to do what's right for our country. i think there are a lot of small and midsize banks which are ready to step in and fill the void if such a void is created. >> only four of the ten biggest banks in the world are american

banks. the top four are all banks based in china. you've probably heard some of the criticism about the chinese banking system. if we were, and i presume now still are, too big to fail, what does that say about china's banking system? >> i agree. i think too big to fail is not just a u.s. problem. it's a global. many of these banks around the world are too big to fail, especially where banks are such a huge percentage of their gdp. >> does china have the internal financial architecture to protect against a fail? and if they don't, what would happen if we did see a crisis, a serious crisis in china's banking system? >> what i know of, and none of us has perfect information into the chinese government and their financial system, but from what i know, they have enough capital to stand behind their banking system. but again, it leads to great cost to their society, leads to great market upheaval. one of the transmission mechanisms from china to the u.s. are obviously risk

premiums. even if our trade linkage is mod rat, if trade premiums go up around the world, that could have an effect. >> since the speech yesterday, what have you heard back from the industry, from peers, from people you've known for a long time? >> people i've known for a long time know that i call it like i see it. i wouldn't be doing my job if i didn't stand up and say, hey, here's a risk i see. here's the thing. we usually don't see these things in advance. we didn't see '07, '08 in advance. here's the rare case where we see a big risk in our economy that is not yet addressed, and the question is, do we have the courage and political will to make the tough choices and do something about it. >> my question would be, we're still looking at the last financial crisis, which is eight years out. usually we're paying too much attention to the last financial crisis that we don't see the next one coming. >> i agree. at a minimum, we need to deal with the last crisis. if we don't do that, we haven't taken it off the table. but i'm with you, it's much harder to find the future

crisis. we didn't see it and we were looking. >> it lloyd or gary at goldman give you a call yesterday? >> no, they did not. >> did anybody give you a call and say, what are you talking about, why are you saying this? >> no. >> you didn't hear from anybody? >> i got some e-mails, but no calls. >> so i shouldn't have used the word call. did anybody that runs or is in position to help run a major u.s. bank send you a correspondence of some kind? >> no. no one that fits that category. >> have they not figured out your new e-mail yet? >> they have my old e-mail. look, the thing is, i'm not -- i feel like i wouldn't be doing my job. the federal reserve's mission -- obviously we have a dual mandate of stable prices and maximum mandate. if i didn't step forward and say we have a problem and we're

going to take responsibility to do something about it, who's going to do it? who's going to step forward? >> we're going to have marty feldstein on later this morning. he actually thinks the federal reserve is partially responsible for the huge ballooning we've seen in asset prices, that there's this bubble that's been built up in stock prass and real estate. the fed clearly stated it wanted to drive up a lot of these asset prices. that was part of what was happening. the question just becomes, has it gone on for too long? what do you think on that point? >> i sympathize with that view. i think there's a lot of truth. low interest rates around the world are not just because of central banks. it's almost economic conditions around the world causing interest rates to be low and necessitating low interest rates. but we're in somewhat of a pickle. we all want to get inflation creeping back up. we think the fomc's last statement that we expect to come back up over the medium term. i think that's what's driving lowe interest rates more than a discretion of central banks. >> there's been an awful lot of

talk about whether the fed jumped in december just at the wrong time. we're looking at an economic slowdown in other parts of the country. certainly in manufacturing here in the united states. what do you think about where we stand right now just in terms of where the economy is, whether it can sustain additional rate increases. >> our current forecast, the fomc's most recent one, is for moderate economic growth and inflation returning to target. if that is the case, we would expect a gradual increase in interest rates. as all fed officials say, we're very data dependent. and they really mean that. we take that very seriously. so we're looking at the data. obviously since january, the data has been mixed. we're going to keep watching the data and decide in march or beyond when it's the right time to move. >> neel, stick around. we're going to take a quick break. when we come bang, we'll get to neel kashkari. we have a lot more to talk about. also later this morning, zika fears are likely to spike this summer. the virus could spread widely and quickly without infected

people even knowing they're infected. dr. scott gottleib will join us to address the fear factor. stick around.

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welcome back, everybody. let us now get back to your special guest, minneapolis fed president neel kashkari. thanks for sticking around. >> thanks for having me. >> is deutsche bank a threat to the global economy? >> well, i'm not going to comment about individual banks. i don't think it's appropriate for me to do so. but i think that our biggest banks around the world, they're so concentrated, they have so many assets, they're so complex. my concern is that if one of them were to run into trouble -- just think, if the economy is stable and markets are stable

and sound, if one big bank runs into trouble, we can probably deal with that. these new tools that the u.s. and europeans are putting in place will work. the challenge is, if there's stress in the global economy, if there's stress in global markets multiple banks are seeing similar strains, what do we do this sn this? >> do you believe if we saw a cris crisis, and forget the bank itself, we'll call it large european bank, large china-based bank, whatever term we want to use, that if we saw any kind of a crisis at one of those banks or maybe one of more of those banks, that the u.s. government and u.s. taxpayer would be forced to join into another bailout? would we come to the rescue of a foreign bank? >> i think it depends on how big the presence was in the u.s. probably we'd end up putting a lot of pressure on their government to stabilize their banks. the question is what kind of con today onis there for whatever actions they take. is there a contagion across the

atlantic or pacific, and could that present risk in our ma markets. >> and that's something that the market obviously struggles with, is determining whether there's any contagion. you see the u.s. bank stocks getting hit so hard into last week, and it largely is probably because we just don't know what's going on inside these banks. is there any way to get around that? if the market looks at these banks and says the regulations made them less profitable, we can live with that, i assume. how do we convey what exactly is going on inside these banks? >> it's hard. there's so much complexity. it's hard for the managers to know exactly what's going on, let alone for market participants to know what's going on inside a bank. and that's why, you know, some people are advocating much, much higher capital standards, the utility model, because you don't foe what's going on inside. equity capital is the only true protection against shocks. so when do you have enough? i use an analogy yesterday that was controversial of a nuclear reactor saying if a nuclear

reactor melts down, it's so devastating for the economy and society, governments will do whatever they can to stabilize it before it happens. you fukushima disaster. i read a report where they said they should have seen a tsunami coming. in the previous 1,000 years there was evidence of a tsunami coming that large. but i think we can protect against a 50 year or hundred year flood. we had the great depression, great version. two events in a hundred years. shouldn't we have a system strong enough to with stand a shock like that. there's no guarantees. but we do know, as you said, the biggest banks are bigger than they were than before the crisis, more complexity. have we done enough? my judgment is the answer is no. >> banks are very good at creating new instruments before

regulators can spot them coming. >> i think paul volcker had a famous line the most important innovation was the atm. >> we got to go. here's the, what i hear and we probably all hear more and more from wall street, which -- forget about the sympathy is dodd-frank killed the bond trading business and if we have a crisis in credit the big banks cannot handle the current bond i illliquidity. your response. >> big managers like pimco and blackrock, if they want to trade with each other they can find a way to tread with each other. >> we appreciate your time coming first on c-nbc. good luck in your new role and enjoy minneapolis. >> thanks. when we come back we have this morning's big movers. we have a list of stocks to

watch right after this.

welcome back to "squawk box". time for one quick stock to watch today. devon energy is slashing their

david. oil prices continue to weigh prone ducers. independent oil company will cut 20% of its workforce in the first quarter. revenue dropped 52%. shares falling 5% in after hours trading. coming up, u.s. stocks coming off their best two day rally since august of last year. we're going to get you ready for the trading session today with top strategist from bank of america and jpmorgan chase. you're watching "squawk box" and we'll be right back. ♪

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♪ no, you're not ♪ yogonna watch it! ♪tch it! ♪ ♪ we can't let you download on the goooooo! ♪ ♪ you'll just have to miss it! ♪ yeah, you'll just have to miss it! ♪ ♪ we can't let you download...

uh, no thanks. i have x1 from xfinity so... don't fall for directv. xfinity lets you download your shows from anywhere. i used to like that song. stocks pushing to make it three straight days of gains this year and that is saying something. futures looking positive at this hour. more on your money ahead. plus a closer look at how all

this oil is causing a derailment in the rail car industry. >> new guidelines from the fda on zika virus and blood donation. we'll have the latest on the battle to stop the zika virus from spreading in america. a new battle growing between apple and the government. the tech giant said it will not open the iphone of one of the san bernardino shooters despite a court order to do so. the second hour of "squawk box" begins right now. >> announcer: live from the beating heart of business, new york city. this is "squawk box". welcome back to "squawk box" here on cnbc first in business worldwide. i'm becky quick along with brian sullivan and mike santoli. we've been watching futures after two days of big games there are green arrows once again. dow futures indicated up by 76 points above fair value. nasdaq up by 20.

this is all happening as oil prices are rebounding as well this morning. they are up by 2.4% with wti up 71 cents to $29.75 a barrel. here are the stories making headlines at this hour. big day for economic numbers. bin 90 minutes you'll see producer price index. it is expected to show a decline for january. then the housing starts for last month expected to do a race in december decline. speaking of housing you may have seen the weekly mortgage applications crossing up. still have to figure how much are new purchases versus refis. not a bad number. also out today industrial production for january coming in at 9:15 eastern time. at 2:00 eastern, the minutes from the most recent meeting of federal reserve policymakers. one of the many stocks we're watching for you this morning is pipeline operator kinder morgan. that stock has been battered over the last couple of months but getting a nice boost this morning.

it's up nearly 9%. warren buffett berkshire hathaway announced it is taking a stake in the shares. >> all refinancing, by the way. mortgage applications. >> refis. that blows that whole headline out of the water. >> kinder morgan was doing a big refinance. >> i thought so too. >> mortgage applications. >> all refis. >> thank you. >> when you have a ten year at 1.27%, mortgage rates come back, everybody is refinancing. >> you're refinancing. >> you need 17 years of income documentation. >> not any more. i did that rocket application, boom. quicken loans thing. hopped on it. >> whole other segment. we should move on. >> we'll tell you about a developing corporate story. federal judge is ordering the apple help fbi break into the cell phone used by one of the

san bernardino shooters. the tech giant declined to do it voluntarily. they need apple's attempt because too many failed attempts will trigger an apple fail safe feature. apple plans to fight the order. we're just hearing from apple ceo tim cook in the last couple of hours. in a letter to customers he calls the court order dangerous and the demand unprecedented end. in a letter to customers cook said fbi wants apple to make a new version of the prafting system circumventing several important security features and install it on the iphone. in the wrong hands this software which does not exist today would have the potential to unlock any iphone in someone's physical possession. neel kashkari called on lawmakers to rein in banks and you the taxpayer that includes breaking up the nation's banks. the minneapolis fed president joined us minutes ago and talked

about how more regulation for big banks could, indeed, help smaller regional outfits. >> i think that community banks or small banks are being caught in the umbrella of what we're trying to do to stabilize the biggest banks. in my view if we took action to stabilize the biggest banks make sure they are secure we can release southeast regulations on the smaller banks. >> neel kashkari worked at the treasury department during the financial crisis where he was one of the key architects of the big bank bail out. >> let's get back to the markets. looking like a steadier open. maybe a third day of gains. little bit less volatile. joining us now to get a read on what's actually going on in these markets is dan suzuki. and jpmorgan asset management strategist. maybe i can start with you. if you can set up what's happened in the fixed income markets say last week we had

what looked like a buying panic in treasury, yields went down. credit markets still remain unsettled. what do you think is now being priced in about the economic outlook into those markets right now? >> you know what comes to mind is a quote from a writer which i may not be quoting exactly but i'll paraphrase it's not what you don't know that get you in trouble it's what you know absolutely that gets you in trouble. which means risks are usually greatest where they are least perceived. when i see this kind of indiscriminate stampede towards what's the safe asset area of the market, sovereigns, et cetera, and a stampede out of anything that's offering you some yield in these markets, markets that are supposedly hungry for yield and all the conversations we're having with clients where can i get income, et cetera, it makes me wonder where investors are undermining the risks or over shooting on

what the risks are on both of those. it makes me think there needs be a more balanced view as opposed to running from one end of the boat to other. you can't brush them -- you can't put the same color across the entire credit market but absolutely there are opportunities in the credit markets and this is where i certainly wouldn't advocate an approach that tends to mimic an index. i would advocate an active management approach and unrestrained approach to avoid some issues. we'll have an escalation of defaults within the energy and commodity sector. we're starting to see that. historically we know spread contraction which we're in a 10% world we know historically breaking traction starts took cure way before we peaked out on defaults. investors sitting around waiting for that default peak to occur will miss out on the recovery and much has been said about the

liquidity in these markets and you all have discussed it before we're missing that shock absorption mechanism. >> we asked neel kashkari about that. he said he wasn't worried about it. designee should talk to some of the investors trying to get out of these positions right now and finding that the street is silent. it's just radio silent. >> energy bonds or everthing? >> that's everything. it's going to the same on the way back in. not just easy to get out of these positions, just as difficult to get back in. so the point being you have to be disciplined, you have to be discriminating, but this is the time to start looking at, you know, redefining risks. is it less risky or more risky to buy an undervalued asset that's offering your significant yield. >> dan, big question now in the equity markets is can we believe this bounce that's been going on for a few days. if we cross 1900 in the s&p today it's the 14th time

year-to-date. only 30 trading days. is this the new range? you recently lowered your target. what your anticipating short term here? >> i think it's a tough call and which is part of the reason we lowered our target. we see a lot of risks now, a lot more risk now than we did a few months ago which is why we reflected that in our target. the way we look at it valuation became supportive. valuation right now for the market is reasonable. sentiment depending on what indicator you look at is bad to awful. missing ingredient that we're looking for is growth. really we've seen continuing deterioration. there's been some green shoots here in january but unless we see eat ear turn around in our stabilization in growth, a big response, policy response from policymakers, orca capitulatio it's hard to sustain.

>> up say policymaker response. we're still on the tread mill. we don't want the market to take good news as good news. the market has been calling for a response. also rebelling what negative interest rates and other stuff. >> you don't need to see it. the incremental benefit you get from policy actions has been less and less going forward. but, as my colleague likes to say the markets stopped panicking when policymakers start panying. we haven't seen that. it's one of the few catalysts you can see. you don't need with it sentiment at such bad levels as they are today. all you need is some stabilization in growth and there have been some green shoots. you look at the january data you saw a little bit of a bounce in the ism, market ism picked up, chicago pmi, milwaukee pmi, all of these are pointing to growth. it's too early to call the green flag. >> all those things are important. >> yes. >> but it doesn't matter how all

the economic data comes in if people are scared that we'll see a major global financial crisis started in china or started in germany do the economic numbers even matter? >> you could have made that point last summer. >> i could have made it in '07. '99. '74. >> if you look what happened last year we started to price in a global collapse, a global recession and when you don't get it you have to price it out. that's what you're seeing now. we've gone from pricing in a recession to 35% rate. if you don't get it you have to price it out. >> i think, however, that there is definitely some truth to what dan is saying. when we're talking about central bank action, more policy, everyone would agree central banks are staring at the fact that there are limits to their monetary stimulus and it's not effective. we're in a world where $7 trillion of sovereign debt is

trading at negative yields. think about what happens if the fed comes in and says big mistake, we're going to go back to zero rate. what sort of lack of confidence does that introduce to the markets basis if the fed stays the course. maybe aisha low -- a shallower . we go back on the fundamentals. >> we'll see what the fed had to say last month. thank you very much. when we come back, concerns over the spread of the zika virus growing. new information linking the disease to birth defects. a doctor will join us next how you can protect yourself. later once growing at a tremendous pace the rail business seems to have hit a detour. talk winners and losers in just a bit. stick around, "squawk box" will be right back.

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♪ no, you're not ♪ yogonna watch it! ♪tch it! ♪ ♪ we can't let you download on the goooooo! ♪ ♪ you'll just have to miss it! ♪ yeah, you'll just have to miss it! ♪ ♪ we can't let you download... uh, no thanks. i have x1 from xfinity so... don't fall for directv. xfinity lets you download your shows from anywhere. i used to like that song. welcome back to "squawk box," everybody. by the way, good morning and it is a good morning for your money because the dow futures indicating a gain of 72 points at the open, hardly tearing up the world, guys, but if we do finish higher today this would be a three day run higher for the dow jones industrials average which is everybody by now knows is off to its worst

start to a year ever. a quick stock to watch is campbell soup. campbell soup is good food and good stock. raising its full year earnings forecast. expecting second quarter results to be better. they expect core earnings to rise 10%. guys, we saw pretty solid results out of hormel. they are maker of spam and dinty moore beef stew. zika virus has now spread to more than 30 countries prompting the world health organization to declare a global emergency. the fda is now recommending that those who are at risk much being infected should not donate blood for our weeks. that includes those with zika virus symptoms. joining us right now to give us

the latest on the battle to fight zika is dr. scott. this is something that is really starting to create a lot of concern here in the united states as well even though this is not one of the countries where you have seen cases that have developed from mosquito bites here in this nation. why don't you first of alltel bus how big of a concern this is for people in the united states? >> well, i think we should be concerned. we're going to see outbreaks, isolated outbreaks especially in the gulf coast region, florida, georgia, that's where the apologetic that carries this virus ranges. what's concerning here is the nature of this risk, the fact you could see a spreading infection, spreading epidemic and not really know it because it produce such mild symptoms and you don't recognize something is happening until congenital risks manifest itself. cdc has to do good tracking this

summer. not just with people who present with symptoms but catching mosquitos and testing them to see if there are outbreaks and taking local measures to cut down on the mosquito population. >> there's been all sorts of confusing stories about whether or not the link between zika and microcephaly in women who are infected with it while they are pregnant, is the science sound to you? do you believe there's a direct link between zika and this huge risk for pregnant women? >> right. well it's not firmly established but enough suggestive evidence to indicate there's some link. they found the viral infection in the placentas of affected if he thes and brains of affected fetuses that passed away there's a real suggestion here. this virus causes neurological symptoms in adults as well.

so there's a broader suggestion that the virus can in rare cases affect the neurological system. again, that's pure speculation, but you start to look at that picture and say well in rare cases the virus is doing something to the neurological system. >> we know brazil is ground zero. we also know brazil is hosting the olympics this summer. how big of a threat does that pose to this epidemic spreading around the globe? >> yeah. brazil has an epidemic right now and probably because brazil has never seen this virus before and so you have a lot of people who are very vulnerable to it, who haven't developed antibiotics and i want spreads easily from person to person. host for this virus is the human become. the mosquito transmits the virus from one human to another.

if a human has had the virus before they are a dead host. they won't spread the virus any more. they won't develop the virus. i suspect that the virus is probably pretty rampant in brazil. estimates of 1.5 million people have been infected is under counting. by the time olympics roll around enough people will have this virus in brazil and spread will show. now that we're seeing these manifestations in the form of these congenital effects in kids it suggests this virus has been spreading for a very long time in brazil and in high numbers. >> what do we know? what about the case here in the united states. people who traveled overseas and come back. i've heard about 14 cases in one place. do you think that's underreported too? >> we do good wimosquito contro

here in the united states. especially in the gulf coast region and parts of florida. you typically don't see outbreaks of the mosquito borne illinoisnesss. good proxima >> in the past we've seen isolated outbreaks of dengy fever but not broad effects of it. i think that's a proxy we could control the outbreaks here in the united states in part because we do good mosquito control and in part people take precautions against mosquitos. it's incumbent upon people who are in affected regions or traveling to affected regions and could be vulnerable particularly expectant moms. this mosquito only bites typically in sunrise and sunset. not a mosquito that bites at night. you have to be extra vigilante

during those hours. >> you say that like we have a handle on the mosquito issues but i can't ash summer where i didn't get a million mosquito bites. how concern are expectant moms going to be through the sum center >> i think they are going to be concerned. probably it's easy for me to say they shouldn't be concerned or more concerned than they should be given the threat here in the united states but i think that's the problem with a virus like this is it could be spreading and you just don't know it until it's too late. that's why i think it's incumbent upon the government and cdc to do a lot of tracking and tracing and a lot of oversight to make sure there aren't outbreaks occurring. to be reporting that to the public that will help allay public fears. cdc should take vigilante steps to test the mosquito population. again we'll see some isolated outbreaks. we also need to take steps to do vigilante mosquito control. what we need are therapeutics

for these mosquito borne illnesses. we don't have it. or when we do have it we don't use it. all right, scott, thank you so much for joining us today. i have a feeling we'll be talking to you more over the next couple of months about this. >> sure. >> unless you're in one of these affected areas. >> how dire is it? >> a friend of mine was stricken. woke up the next morning almost completely paralyzed. no symptoms. much better now. but barre eats some of the lining off your nerves. it's good news. very scary. >> coming up westminster kennel club has a new top dog. the world will be barking about

c.j.. "squawk box" will being right back. time now for aflac trivia question. approximately how many emails are end every day worldwide. the answer when cnbc "squawk box" continues. no! who's gonna' help cover the holes in their plans? aflac! like rising co-pays and deductibles... aflac! or help pay the mortgage? or child care? aflaaac! and everyday expenses? aflac! learn about one day pay at aflac.com/boat blurlbrlblrlbr!!!

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. now the answer to today's aflac trivia question. approximately how many emails are sent every day worldwide? the answer, 160 billion. i think a billion of them dome my e-mail box. >> that's the dumbest question ever. how many emails are cents every day? too many. welcome back to box. the westminster dog show, the second oldest continuously held sporting event in the united states and trails loin the kentucky derby. a german shorthaired point er, this dog is named c.j.. it's three years old and only third of his breed to win the crown. 3,000 dogs competed in the two day event and while they are all

man's best friend there can only be one top dog. >> this could be bad for the market in an unscientific study. a pointer won in 1974 the dow fell 25 points. 2005 the dow fell .6 a 1%. a german shorthaired point certificate an ominous warning for the market. coming up crude oil on the rails. we'll see how the oil glut is hitting rail car companies when "squawk box" returns. victoria stilwell, you appear on tv working with canines. are you a dog lover, watson? i do not own a dog. but i work with veterinarians. how do you do that? i help them analyse over one hundred thousand pages of medical studies. that's great... 'cause they can't exactly tell us what's wrong with them. isn't that right, rusty? rusty. who is a good boy? who is a good boy? you are. yes, you are.

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welcome back, everybody. among stories front and center this morning, earnings out this hour from travel website operator priceline. they earned $12.63 per share. that beat the street's expectations of $11.80. revenue coming in above forecast. that stock is up by better than 9%. mortgage applications rose by 8.2% last week. driven by a surge in refinancing activity. the mortgage bankers association says the jump came as the average 30 year mortgage rate fell to 3.83%.

the lowest since last april. president obama says he'll nominate a judge to fill the vacancy on the supreme court wane few weeks despite statement from leading republicans that they will not consider any nominee until after the 2016 election. and developing corporate story this morning a federal judge is ordering april told help the fbi break into the cell phone used by one of the san bernardino shooters. court papers show the tech giant declined to provide the assistance voluntarily. investigators need apple's help because too many failed attempts at unlocking the iphone without the proper security code would trigger an apple fail safe feature that erases the phone's content. apple plans to fight the order. in a letter to customers tim cook calls the court order dangerous and says the demand is unprecedented. in a letter to customers cook says fbi wants april told make a new version of the iphone operating system circumventing several important security

features and install it on an iphone that was recovered during the investigation. in the wrong hands apple says the software which doesn't exist today would have the potential to unlock any iphone in someone's hands. this is a murky situation. we don't understand the technical issues. this is a battle that's been going on over a year the encryption battle between the government and silicon valley. they don't want to provide keys to get in the back door. this is an extreme case. this is a known terrorist where american lives were lost. it's pretty complicated case. i do understand not wanting to set a precedent but not helping in this situation will not go over well. >> it's consistent with how the tech industry takes a position on these things which we will not be enlisted in a prosecutor's effort or government effort to get at something you tell sues there. basically without some kind of prod policy. without some kind of law.

this is how you structure your products, so i get why tim cook almost has to take this stance. >> although you can get into the legal argument of who owns the phone. i don't want to get too wonky in the law school, if you commit a felony your house is subject to search and share. the phones s ois the property e terrorist who was killed. government says we want in that door. the way we need to get in that door is to build this new version of ois. apple is concerned if they build this new ois and gets in the hands of somebody who wants to do bad it opens up this door. the key sentence is compromising the security of our personal information can ultimately put our safety at risk that is why encryption is so important to all of us. agree with that but i would say 14 dead and 22 injured is

putting your security at risk maybe a lot more than worrying about phone encryption. >> i agree. this is a very tricky situation. i understand again not wanting to set precedent. >> privacy and protection laws go well beyond -- efforts to get around them to solve crimes go well beyond the invention of the smartphone. the iphone has only been around since 2007. privacy laws have been around longer. >> because you raise the question of ownership. "wall street journal" says the phone is owned by mr. farook's former employer, san bernardino county. the county gave investigators permission to search the phone. >> apple saying force us. you know, absolutely force us to do it. we won't do it willingly. >> isn't that what they are doing it and they are still fighting it.

>> apple said if you force us wink, wing let us know our customers know we don't want to do this. there may be optics to customer. >> as an apple customer i want them to do this. >> you understand what i mean about the optics we're protecting you because the privacy advocates will have a field day now everybody can get into everything. >> not just privacy. government telling a company to alter a product because they said it's important for the government's purposes. you can broaden it out that way. >> is that important for the government's purposes or important for protecting the victims and solving a crime. is at any time government or vis-a-vis the prosecutor trying to solve the crime and understand the motive of 14 dead and 22 people injured. i start ad twitter poll. should they do it? 52 votes, 60% say no they shouldn't do it.

privacy is more important. unscientific twitter poll. >> self-selecting group of people. >> my twitter followers are the most handsome and intelligent twitter followers of all. once growing at a fast pace the crude by rail business has hit a snag. morgan brennan joins us with more. >> reporter: good morning. so from 2008 to 2014 as fracking boomed so did the business of hauling oil by train. over that time period crude by oil surged 5,000%. peaked at over a million barrels per day in the third quarter of 2014. but as crude prices have collapsed volumes for the biggest railroads have fallen by nearly a quarter. that's according to the association of american railroads. the lion's share of american oil trains haul crude where there's 2 million barrels of capacity.

350,000 barrels are being loaded right now. that's down by nearly half from a year ago. why are we seeing this drop? first of all low oil prices make moving oil from north dakota to the coastal refineries via rail less economically. and spread between brent and wti crude has narrowed enough to make imported crude more attractive to these refineries. to be fair, crude by rail still only a small piece about 2% of overall business for the major railroads but had bean fast growing and high margin one. also worth noting the weakness in this market we're seeing throwing a number of infrastructure projects into question including according to analysts just how much i'll this philip 66 refinery will continue to accept via rail. >> morgan thanks. we'll see you throughout the day.

for more on how the rail sector sunday pressure especially rail manufacturing and leasing companies let us turn to your next guest. he's justin long who covers rail and transportation suppliers. just chip, what does the story that morgan just told us mean for our viewers and listeners for investments in the rail industry. >> morgan mentioned it. if you look at crude by rail shipments you look at 2% of what railroads haul. ate fairly small part of the business. i think it's a much more meaningful data point when you look at the rail car manufacturing and leasing industry. you know, is that an industry that's been on a wild ride. if you look at rail car demand coming out of the recession, the last five years rail car deliveries have continued to climb and in 2015 we actually had an all-time record in terms of rail car deliveries. just over 80,000 units. to put that in perspective, we

estimate normal replacement demand in the rail car market is somewhere to the tune of around 50,000 units. so a significant pick up and clearly if you look back over the last year, you have seen moderating demand trends in terms of orders and backlog and that's come from a weakening of the energy market but also rail volumes overall have decline. the last thing i would point out when you think about demand in this market is productivity and train speeds have improved especially over the back half of last year and if you're moving these trains faster, you need fewer rail cars to haul the same amount of freight. so all of those items have combined to form a head wind in this market and we've seen rail car backlog fall by roughly 20% from peak levels a year ago. >> are there any rail companies, rail manufacturers, rail leasing companies that are worth our viewer/listener's hard

earned money? >> we prevail the rail over equipment names. when you look at the equipment space you're in an environment where backlog will continue to fall. there will continue to be head winds in that market. as we retreat to more of a replacement market. and it's going be very difficult to find a positive catalyst in the near term that reverses the trend in those stocks. we prefer the railroads. the railroads, ate great industry with a lot of pricing power. if you look at the price of rail versus truck it's at a discount and, you know, we've seen that pricing power play out in times where volumes are declining, including the recession. the rails continue to get price increases through the recession. we also think there's a lot of room for productivity improvements, these are companies that pay dividends, they repurchase a significant amount of stock feign look at valuations right now it's a pretty compelling risk/repardon.

that's where we put moreno. >> thank you for joining us bright and early. >> thank you. when we return shares of hormel sitting off an all thyme. producer of names like spam and dinty moore are found just about in every house across the country. "squawk box" will be right back. smart devices are up. cloud is up. analytics is up. seems like everything is up except your budget. introducing comcast business enterprise solutions. with a different kind of network that delivers the bandwidth you need without the high cost. because you can't build the business of tomorrow on the network of yesterday.

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welcome back, everybody. hormel the maker of spam, skippy is on a tear. food giant trading at an all time high. the stock got a big pop after the company reported better than expected earns. joining us now is jeff ettinger, chairman and ceo of hormel and jim snee president and chief operating officer. gentlemen thank you both for being here. jeff, let's start off talking a little bit about raise theed guidance and strong earnings you came in for the year. what helped things out? >> we really had strong performance from four out of our five business segments

generating record earnings. 11th consecutive quarter we've been on a tear and we're enjoying the balance model in action for our company. >> in terms of things that you were looking at we did see revenue that was lower than expectations. can one of you explain what happened to bring the revenue down? >> sure, becky. we had the impact of some declining pork markets which impacts the pricing in a number of our refrigerator food areas but turkey supply issues as we recover from last year's avian influenza outbreak. our team did an outstanding job navigating us through that situation. we actually expect turkey supplies to be back to more normalized levels here at the end of our second quarter which is the end of april. >> let's run through each of those. the pork pricing being down may have hurt revenue but beneficial to margins, correct? >> that would be correct,

absolutely. we do stay very current, some of those items can be more commodity based so we stay current with that pricing. but it does allow us at times to expand margins. >> so what happens as we move forward? would those margins get cut into a little bit? >> i think as we move forward, you know, our team does a very nice job with their pricing discipline. you know we're still all about expanding our value added branded portfolio, really moving away, continuing our shift away from commodity based items especially in our refrigerator segment. over the years we've seen that play out to your our benefit. >> let's talk about the avian flu. you expect turkey supply to be back to normal levels later this year? >> so our business encountered the flu last spring and clearly impacted volumes all the way through the most current quarter. we did not see a recurrence in the fall and obviously we'll be

closely watching this upcoming spring. assuming there are no further outbreaks we'll be in position to be at full volumes at the second quarter. >> there have been a lot of concerns on street about a slow down in the economy. the question is whether that will bleed into the rest of the economy. you guys have a pretty good feel for what's happening with the consumer. but you're raising your guidance for the full year and raising the dividend by 16%. what do you see right now in terms of the consumer strength? >> well, from our perspective, becky, i mean we really feel like we have a portfolio of brands or foods that fit that meet the consumer needs. as we think about our product offerings, we were focused on a number of different growth platforms, things that appeal to multicultural platforms that have a more healthy feel and items catering to consumers on the go. even though there are some macro issues out there we feel our

growth platforms are very well positioned to meet the needs of our consumers. >> you know, i think about a lot of thing when i think of spam but healthy and holistic is not the first thing that jumps to my mind. that doesn't play into the portfolio. >> a key part of what we're communicating at this conference is how we changed our portfolio. and by expanding our own franchise. so spam is still an important element of the portfolio, it has a five year growth rate both on domestic and international basis but hormel is a lot more than spam. >> some of those product extension, you mentioned applegate, packaged foods in general have been undergoing consolidation. do you expect that to continue and how much do you expect your company to participate in that? >> you know, we've been very active on the acquisition front. certainly if you go back a decade to the 2000s.

a number of acquisitions are what you consider smaller acquisitions. as we've become a bigger company, it's taken more bigger scale to move the needle. if you look back over our last three acquisitions, the skippy brand, muscle milk and our most recent one applegate farms were bigger acquisitions. we'll continue to be on the look out for the right strategic fit for our organization. and we're really focused on those growth platforms i mentioned earlier to make sure we're identifying businesses that align with perhaps more global multicultural healthy holistic or on the gopro file. >> jeff, jim, thank you both for joining us today. >> thanks for having us. >> when we return today mortgage applications out just a short time ago. we'll tell you what the numbers say about the state of the housing industry. as we head to a break take a look at listing trends according

to realtor.com.

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volume rose just over 8% compared to the previous week. it was all on the back of refis. they jumped 16% for the week and up 50% in just one month. now this is the average contract interest rate on the popular 30 year fixed conforming loan fell. volume is over 64% of all mortgage volume. less than half last fall. mortgage applications to purchase a home they are not nearly as rate sensitive and fell 4% last week. they are still considerably higher than a year ago by 30%. who is doing all the refinancing? becky raising her hand. it's the bigger ticket borrowers. i won't ask. they benefit more from these rate drops. why? the mortgage association said bankers seat new record in terms of average loan size at $316,000. va set their highest level on record. now 316 is not a jumbo but the

jumbo rate is actually lower than conforming and jouv refis are bringing up that average. it means more money in homeowners pockets. what's interesting they are not doing the huge cash out refis they are still as becky incredibly conservative. >> not cashing out. they are basically giving money away. >> you're parking it in your home. >> i'm not going anywhere. i want to pay it off. >> grow your money some where else >> you're lowering your monthly, therefore should not have a positive effect spending wise? >> you're feeling better about your finances. you're feeling more wealthy because you have this wealth in your home. my argument grow your money the most you can and if it's sitting in your house -- >> isn't there a down side down the road. maybe i'll be the bucket of water this time, which is if everybody in five years sitting on a 3.5% mortgage and mortgage rates normalize people that look

to move -- we're all sort of cheering this now but i wonder in five, 10, 15 years if this date of birth worst thing to ever happen to the housing market because people may say i'll just refi again, add a room rather than move up in there word freezes everything. >> reno vagus are booming. people are putting money into house to. they don't want to move. five, ten years from now are these low rates keep people in their houses. i think they will. >> then the pool of renters which is pretty big. >> moving is a huge economic benefit. $58,000 goes into the economy every time somebody moves. they pay the moving furniture, buy furniture. >> big hit personally. >> big boom but big hit personally. >> all right, diana thank you very much. coming up is there a growing risk of recess. we ask harvard professor marty

feldstein. then the business of blue jeans. ceo of levi strauss joins us. "squawk box" will be right back. and why stop to find a bathroom? with cialis for daily use, you don't have to plan around either. it's the only daily tablet approved to treat erectile dysfunction so you can be ready anytime the moment is right. plus cialis treats the frustrating urinary symptoms of bph, like needing to go frequently, day or night. tell your doctor about all your medical conditions and medicines, and ask if your heart is healthy enough for sex. do not take cialis if you take nitrates for chest pain, or adempas for pulmonary hypertension, as it may cause an unsafe drop in blood pressure. do not drink alcohol in excess. side effects may include headache, upset stomach, delayed backache or muscle ache. to avoid long-term injury, get medical help right away for an erection lasting more than four hours. if you have any sudden decrease or loss in hearing or vision, or any symptoms of an allergic reaction, stop taking cialis and get medical help right away.

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still too big to fail?

>> if we took acsthienlize the biggest banks make sure they are secure maybe we can release some regulations. >> chilling warner from neel kashkari. >> apple versus the american government. new this morning, ceo tim cook speak out, worried an fbi order could threaten the security of apple customers. >> breaking economic news. key reads on inflation and house cigarette 30 minutes away. third hour of "squawk box" begins right now. ♪ >> announcer: live from the most powerful city in the world, new york. this is "squawk box". welcome back to box, everybody. this is cnbc first in business worldwide. i'm big big along with brian result land and mike santoli. joe and andrew will be back tomorrow. dow futures now indicated up by triple digits. you're looking at a gain of 100

points for the dew. s&p up by 13 and nasdaq up by 39 and if we were to string together a third day of gains after the last two big day of gains that would be the first time in 2016 that we've seen three days in a row of gains. check out oil prices that hour. you'll see right now energy prices you were by over 3%. wti creeping back up towards $30 a barrel at $29.94. we do have two major economic reports. january housing starts and building permits also the producer price index. economists are expecting a decline of .2%. our top story a federal judge is ordering apple to help the fbi break into the cell phone used by one of the san bernardino shooters. court papers show apple originally declined to provide assistance. apple plans to fight the order. ceo tim cook in an open letter to customers says the government wants to create a back door around iphone encryption.

he argues the demands is unprecedented and warn until applications are chilling. eamon javers will join us with more. as diana oleck told you number of people applying for mortgages jumped in the last week. refinancing is the whole driver of 16%. puerto rico's government says there is substantial doubt about its solvency. warning coming in a long delayed fiscal year 2014 financial report just released. that doesn't come as breaking news to anybody. new minneapolis fed president neel kashkari warns banks are still too big to fail. this and then he says post-financial regulations have helped the firms become healthier. neel kashkari joining us on set earlier this morning. >> there are economies of scale and scope with banks but costs in having these giant banks and if we're to restructure our financial system i believe smaller mid-size banks would grow to fill that void. if other companies want to take

huge risks we can't stop them but we should do what's right in our country, create one set of rules and every bank that operates in america neelds those rules. >> neel kashkari does note a financial crisis outside of the u.s. would be a wild card. stocks on the move. priceline beating the street on both the top and bottom line. results there helped by a surge highway in tell room bookings and you can see that stock is up by almost 13%. campbell soup says it expects to report quarterly earnings above consensu consensus. that psychotic is up by 2%. results from t-mobile u.s. beating the street. profit nearly tripling. aggressive promotion helped it add new customers. futures overall pointing to a higher pop for your money on wall street. this would add to yesterday's gains and friday's gains. is this little sort of mini rally for real?

dominic chu tackling that question for us. for real is for real but i know this. if the market goes up, little more money in our pocket >> more money in our pocket, more money in who ur 1 k plans for retirement. people want to know if it's one of those rallies that can be sustained. i don't have a crystal ball. here are things traders are talking about whether or not you can see a sustained move higher off these lower levels. i want has to do with trading volume. there's a bullish sign emerging for some of these. what we did is we took a look at the biggest sectors in the s&p 500 and found some of the biggest etfs. the fourth biggest consumer discretionary. we saw that ticker xyl, the consumer discretionary trade 10.5 million shares yesterday. it's important because it's higher than the average trading volume we've seen over the past three mosby a million shares. a positive sign perhaps meaning

more people are getting involved remember want to get involved this particular sector. health care, xlv, 3.3 million shares. a good sign there as well. the xlf, financial sector tracks the biggest names. traded 79 million shares normally over the past three months. so a lot more volume there. the one sticky point i should say, becky, here is the xlk. it traded about 10.3 million shares. it should norm sally trade at 14.5. technology is seeing its sector etf trapd lede less. some bullish signs. but we would point this out the s&p 500, for the past two days trade less than it normally

does. a little bit of caution there. both sides of the story. back to you. >> thank you. thanks for work double duty. >> the fed minutes could be a big market mover. marty feldstein joins us. he's former counsel of economic advisors chairman under ronald reagan. thank you for being here today. >> good be with you once again. >> before we talk about the fed and some of the issues that have come through, you've made a few calls recently where you think stock price and real estate price, these were bubbles that were building up and this was long overdue for some kind of a selloff, is that correct? >> that's correct. even though we've had a significant decline in the s&p, down about 12% from the peak at the end of last year, still in term of the price earnings ratio it's still 30% above the historic average. >> so you're telling me even though things have come down you don't think these are fair

prices? >> i don't know what fair means. but i think there's a risk we'll see continued corrections. the fed did a fine job of boosting the economy by its unconventional monetary policies, very low interest rates all along the curve. but that can't last forever. so we'll see at some point further adjustment back towards a more normal level. >> you agree with fed's decision to go ahead and raise interest rates in december? >> yes. i wish they had done it earlier. yes, i think it was appropriate to do that. i think it's appropriate for them to continue to raise as they said in december they would in 2016. >> we're waiting for those minutes later today. we heard from janet yellen last week when she was testifying before congress for two consecutive days. it did sound like the fed is more concerned about what's been happening in financial markets, what's been happening with economies around the globe and

whether or not that will catch up here. are they right to be concerned given the huge moves we've seen? >> i don't think so. i think the fed should understand that they pushed up share prices, that was the strategy of unconventional monetary policy in order to get a boost to the economy. that worked. we were in a very slow increase until 2013 and then thanks to the fed policy shares jumped, people felt a wealthier, they went out and spent more and pace of gdp growth picked up. but that's not a reason to believe that share prices are going to stay permanently higher relative to earnings. >> it's not that the fed needs concerned constantly with the markets or worrying about keeping prices at locked levels but if you do see a huge selloff, a huge move down the concern becomes that ceos lose confidence that in turn leads to job losses and no job creation

coming down the pike. that's what fed has been concerned about. are they right to think about these things? >> no. we're at full employment now, 4.9% unemployment rate among college graduates. about 2.5%. the fed should be more relaxed about that and should recognize that they generated an artificially high price level for shares, artificially low long term mortgage rates, artificially high prices for commercial real estate and the air has to come out of the balloon and if the fed is lucky and if the fed manages its gradual increase in interest rates as they said they would that air should be able to come out of the balloon slowly so that we don't disturb the economy. but ceos should understand that falling share prices are not a signal that some terrible thing is about to happen. >> all right.

professor feldstein thank you so much for joining us today. >> good being with you. coming up breaking economic news. inflation data and housing starts out at 8:30 a.m. eastern time in about 21 minutes. we'll have those numbers, obviously and instant reaction. but first, it's the blue jeans. how levi strauss keeps the prochts rolling in a very competitive fashion business. levi strauss ceo will join us when we return. in new york state, we believe tomorrow starts today. all across the state the economy is growing, with creative new business incentives, the lowest taxes in decades,

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pitney bowes, the craftsmen of commerce. stronger market. third consecutive day of upside if in fact it continued on this way and s&p 500 has a shot' 1900 level which actually has been a little bit of a trench where they fought the war. crossed 14 times different days. stocks to watch. concho resources is joining the s&p 500. texas oil producer will replace plum creek timber after the close of trading on friday.

fossil reports better than expected because of currency head winds. designer of watches and accessories citing sales increases for its fossil brands. growth in online sales. another name, sandridge energy. a macro cap stock. what the heck your talking about it for? this is a company that used to be worth $30 billion. found by one of the founders of chesapeake energy. they will elect to defer making an interest payment. the company is in massive financial trouble. remember that interest payment we were supposed to make? we're going push that off. they have a ferential clause. >> ceo criticized for some deals they did. this was a $62 per share stock in 2008. market cap of $35 billion.

now the stock is at four cents. >> let's get back to the corporate story. federal judge ordering apple to help the fbi break into the cell phone used by one of the bern sheerts. tech giant plans to fight the order. joining us now on the squawk news line, senior editor at rico. we've been talking about this all morning long. you might think hey this is a clear cut case where this is a terrorist, the fbi needs help. why not help them out. what is silly convalley's argument? >> tim cook da late night posting. basically what he's arguing once this software that the fbi has proposed apple create and the judge has ordered to cooperate with them on, once that is created the geni is out of the bottle. the fbi can come back and say we need it for another case and then it's not just for fbi, once

it exists, you know, law enforcement agencies and other countries that may not necessarily have the same kind of standards that we have like in this country, say china, say, you know, russia, they can order apple to cooperate in all kinds of cases. so that genie is out of the bottle. it's a very important policy fight that apple will have with the government. >> i understand apple not wanting to set a precedent that could lead to such concerning issues down road but in a situation like this where it's such a clear cut case are they going to have public opinion on their side? >> that's a really -- you know, public opinion has come out strongly, obviously, against terrorism. i think the body politic in the united states in particular is

especially sensitive. we've seen that reflected in the election. >> we don't front tent terrorists, we don't want to allow information have an easy way to attack our citizens. >> right. so what you see in the tim cook statement today is that apple has been assisting the fbi and they have come forward with a lot of their best ideas to help the investigation. tim cook is trying to say that apple has sought to assist the fbi here without creating this thing that doesn't exist. and they are take a really strong and principled stand. i wouldn't be surprised if we see this go to the supreme court and of course hear the presidential candidates weighing in on this for the weeks to come. >> arik, thanks for joining us. switching gears your next guest has a hand in running one of the world's largest big brand name pair well companies. this company inconvenienced the

first pair of blue jeans hundred years ago. thank you very much for joining us. an iconic brand known worldwide. we've talked a lot about sort of global pain, concerns about the global economy, recessions, whatever. how is levi strauss seeing the global economy right now? >> the apparel sector is going through challenging times, especially as we face currency head winds. we see a decline in tourists spending in new york and florida and the environment in the u.s. is fairly promotional. we're focused on what we can control and passionate about our consumers as they buy our products. wreenly releas ll lly -- we rec results for 2015. we grew in revenue for third

year in a row. i would say that we probably had the best three years in over the last two decades. the underlying health of our business is fairly strong. levi is growing in all categories, grew in men, grew in women's, grew in kids, tops, bottoms and accessories. we've grown our direct to consumer business globally in the mid to high single digits and internationally which is our markets in europe and asia have only been a year. we're focused on improving our structural economics and gross margin and report it in constant dollars we're up for the year. as we've strengthened our balance sheet we're investing for the long term, investing in e commerce, investing in technology. opening more stores for example in 2015 we opened 91 stores that

we own and operate. >> but we talk a lot about retail on c nabs. we talked about this omni channel word which is a fancy way of saying sell it however can you. you guys have been moving more towards direct sale. i by from levi.com. you got to balance that out without ticking off your partners. they need levis in the stores. that move has helped your gross margin. is there a way you can sell to direct consumer without macy's saying take it easy, levi, you're getting too big for, dare i say, britches. >> things are changing for everyone. we have a fairly diversified business model. we sell through wholesale, online, own and operated stores. we also sell to franchise. so given that we sell to about

50,000 different retail locations we feel confident we can compete and gain share even in changing time. going back to the question about customers, you know we have some great customers, we have some great relationships, and, you know, we feel confident about how we can grow our business. for example, in '15 our global wholesale revenue was down largely because we had one less week. wholesale revenue is up if you adjust for that. >> totally separate issue, we talked it yesterday on "power lunch". biggest headline on cnbc is the skinny jean dead? we had a retail guest say the skinny jean is gone. >> absolutely not.

the fits that are working for us are slimmer fits and skinnier fits. we, for example, you know, in the second half of 2015 launched women's denim collection and the entire collection was, you know, based on providing comfortable, contemporary, slimmer and a fit with more stretch and off to a good start. >> how is the fat dad jean back with big rear end and loose thigh? >> we saw a benefit and we're more importantly constantly innovating. innovation center is about less than a mile away from here. really based as we observe

consumers. in a company that invented jeans in more than 142 years ago, global market leaders, have been for a while. >> if you need anybody to model extra around the waist, flat irish rear earned i'm your model. have a great day. >> you asked him about fat dad jean was back. he said a little of that without blinking. >> i didn't get any play of getting too big for your britches comment. went nowhere. >> when we come back we do have some breaking economic news. first your dragging a little bit this morning? skip that cup of joe. we have a new caffeine fix four. details straight ahead. >> announcer: you're watching "squawk box" on cnbc. first in business worldwide. vo: know you have a dedicated

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welcome back to box, everyone. you can call it the ultimate to go cup. a new bracelet with caffeine patch that promise to dole out a similar amount from a cup of coffee. isn't it about the ritual? >> without a doubt.

>> i've seen research that coffee in a white cup tastes stronger and better than in a darker color cup. there's psychology in that. >> i have drank decaf. >> in a white cup >> it looks darker. the contrast. >> whole science of how our brains are tricked. let's check this out. in a matter of second 67-year-old bridge came crashing down in oklahoma. the newkirk bridge over fort gibson lake had been deteriorating over the years. why the d.o.t. built a new bridge parallel to it which opened last month. >> wow. >> i'm eating a muffin. i didn't realize -- i thought i was out of this block so i was shoving -- >> it's the hazards of a morning show. >> we'll wait. >> i'm supposed to chew everything 20 times to maximize

the calloka calorieic intake. let's take a look at stock futures, dow jones industrials average up 80 points. this could be a three day run for the dow first time that's happened in what's bean lousy 2016. we're back with more just muffins and everything else. stick around.

welcome back to "squawk box". breaking news. april lit any of january. data points about to hit the wires with housing starts leading the way a disappointing down 3.1%, slightly under 1.8 million, and negative revision to the tune of .3 down 2.5, and permits more forward looking down a little less but down nonetheless down .2 and that's 1.202 million a little above 1.2 million and last month a who of a revision down from 3.9 down 6.1. let's go ppi. we're looking for down .3. end up with down .2.

strip out food and energy and boy oh, boy this one is up, get this, .4. we're looki ing for .1. i can hear the foc committee jumping around. as we look to the minutes of the last meeting and some of the internals on year-over-year final demand down .2. we're looking for core year-over-year up .6. more than a .4 we were expecting and double the .3 last look. so definitely hotter on ppi, we'll see what its cousin cpi looks like when it comes out later in the week. all things being equal data light on housing. 1.80 on a ten year. 2% that far away? i don't know. it's all about equities and risk and at least for the moment looks like we'll be getting higher energy, higher equities,

and for the most part, most likely higher yields. back to you. >> diana oleck rejoining us here on set to talk all things housing. you're looking at something online with 8,000 numbers on it. >> the numbers that i care about. we're talking about single family versus multifamily. we're seeing single family is down 4%. multifamily down 2.3%. everybody is going to be screaming about the weather. obviously it's colder in january, we had a warmer than usual december. when you go across the country and that's another set of columns not justin northeast and midwest we're seeing the big drops in housing starts, down 10% out west where the weather is just fine. what we need to see is more construction. we've been talking about this ad nauseam for the last several months. so little supply out there of housing, existing homes and newly built homes. we were hoping to see some kind of a jump in starts. we need more house. we're barely up 3.5% from a year

ago on single family. we're down on multifamily which had been the real driver, the apartments on starts. they were in the luxury sector, luxury is pulling back as we've been talking about. now multifamily starts down which is saying we're not going to get that middle to lower end. >> we could easily take that and might be a reflection of economic softness. one thing i heard from home building ceos is that there's noland. >> there's nobody -- >> it's expensive. >> places people want to live. if you want to go out in the middle of nowhere -- everybody else wants to live, land is expensive, too expensive. nobody is selling it. is it really a reflection of weakness or reflection of too much strength where you can't get anything done? >> it's all of it. you have a big labor shortage. we have more job openings in the construction industry than we've seen in a decade. that's because they can't fill them. the problem also is that yes

land is more spendive but the builders are still operating that very low level, single family at 65% of what normal historic demand is and we have pent up demand, and we have, you know, millennials who are looking for those starter homes we're not getting though either. why won't builders do more? they won't build speck houses. >> if you build it they will come but you can't get anybody to build it. >> dpaktly. >> let's get more on this. chief economist at itg research is here. steve, on first read, let's say start with the housing numbers anything to be concerned with here? more of the same? >> i think the thing to be concerned about with the housing numbers is that, look, if you look at the 2016 story for the u.s. economy, you need housing to drive the growth numbers, to get the kind of growth numbers that the fed wants, the fed would like to see. that's been, if you look at gdp and where it versus where it was

in terms of trend, the gap is in construction. and in new housing. you're not seeing it. in understand the issue. they have to follow the home builder stock. i understand the issue about land and construction problems and all that. it's a demand issue and supply issue. >> and margins. >> and margins. if demand was that strong you would see it in prices in margins and price growth for new homes have been compressing over the last year, not expanding. so pricing and margin stealing you it's slow. it's a problem for the fed because it makes it much more difficult for them to generate the growth they want to see when you realize that energy as well as industrial production slowing down. >> if that's a problem for the fed, what does the new ppi number that just came out say upside surprise encore inflation. does that have any implications for the situation the fed finds

itself in? >> no. the ppi is a number but doesn't generate a tremendous amount of consternation among the fomc. there was a time when what happened in raw prices led directly into cpi and you could see a lag relationship between the two. most of our inflation is really in services, rent, health insurance, things like that. so it's really other things. so cpi number is the much more important monthly number. >> not necessarily great for corporate margins. >> no. that's totally -- >> doesn't concern itself. >> no, it's not. i listened to what feldstein said earlier and write the same thing last week. in what the fed did this has been the most unusual, this speaks to housing, most unusual increase in the equity market in that it has been accompanied by this huge surge in demand for real capital that pushed up real

interest rates you had it in the last recovery in house. right. and that's gone. in the '90s you got it from tech. you don't have that same kind of boom going on. >> steve and diana, answer this, we've been doing this longer than we care to admit. we forget how strong building permits were 15 years ago. we're about 30 to 40% of the building permits and new household formation we were ten and 15. >> some would say that was far too much. it needs to come back to a historical level at 1.5 million. we're not even close. >> builder will say i don't have demand to build a house i do wonder if more homes would thread demand because people would realize that household formation is cheaper. >> i would love to hear what you think about wharton. they made a jump into cheap states are. >> express homes. >> but they are actually correct

because i think that -- >> they got a lot of flack for that when they announced that because nobody will make any money off of those homes. >> as an economist i think they are right. if 2016 is going to get the kind of growth number that fed would like to see it's not going to come from the upper earned it will come from the lower and middle end buyer and first time home buyer. the other issue, the thing about building permits and starts on the multifamily side is that we don't know how big these multifamily buildings are. so we look at one start, we know it's five plus units but we don't know if it's an 800 building apartment or six apartment building so you could be satisfying demographic demand more than adequately with multifamily starts. we just don't have that insight in terms of the size of the building. >> we do know multifamily has been all on the high end. we're seeing luxury building after luxury building and all we

hear about is how we need more supply in the middle and lower end where rent is really hurting, you know, buyers. >> if anybody want as good laugh if you live in des moines or whatever go the library get the "new york times" sunday edition, look at the real estate section where the full page ads are, luxury two bedroom condos starting at 14 million. you seen those? don't worry. comes with a private entrance and a private helicopter pool. >> you only need 100 people to buy it. >> to your point only it seems like high end every where. >> that's where the drop in the equity market is so dangerous to the economy in 2016. >> steve and diana thanks for coming in. when we come back corner office trends. that's next.

>> welcome back to "squawk box". apple vowing to fight a government order to help hack the iphone of one of the san bernardino terrorists. eamon javers covering the story for us down in washington. good morning. >> reporter: good morning. we got a real standoff between apple and the federal government. this is all about that investigation into the terrorist attack in san bernardino back in december. at issue here is the cell phone of farook.

he was one of the two married shooters in that attack. the fbi captured his cell phone. they still haven't been able to get inside it and they went to court to get a court order to order apple to help them get access to the contents of that cell phone. here's what the court order that was handed down yesterday actually stipulates that apple has to do. they say they've bypass or disable the iphones auto erase function. they want to make sure the device software won't delay the attempts by fbi to enter pass cods. fbi wants to use brute force and enter in millions pass codes. they don't want the iphone entering any minute delay that will slow them down. last night we got a response here from apple ceo tim cook. here's what he said. they will defy this court order at least for now.

opposing this order is not something we take lightly. we feel we must speak up as what we see as an over reach by the u.s. government. apple saying we're challenging fbi's demands with the deepest respect for american democracy and love of our country. on cnbc.com we asked our viewers what they think about all this and take a look at the results. this is split public opinion 50-50 when you ask them do you support the u.s. government or do you support apple. it's 50-50, in this unscientific poll we got up on cnbc.com. guys that really illustrates the drama here for apple in defying this court order. this is no longer a hypothetical debate about encryption. this is a real terrorist who killed real people in the united states two months ago and apple here defying this court. they have five days now to voice their opposition to this order in court and we'll see where it goes from here, guys.

>> thank you very much. we'll shift gears and talk about what it takes to get and keep the top job. we're taking a look at the ceo of 2016 this morning. and the leadership characteristics and personality trips to the corner office. george, thanks for coming in. what does the ceo of 2016 look like? what traits do they need? >> what's interesting it's changing. used to be the pyramid ceo, command and control ceo. those days are waning fast. now more of a leverage ceo, a leader because if you look at -- >> what the is a servant leader. we're the servants and they are the leader. >> no they are becoming the servants to a much multistakeholder environment. so you've got, look at a flat economy. you got activists coming. you got digital

intermediateiation of service. you of a millennial workforce that's majority. >> is that a bad thing. >> up have to communicate differently. used to be able to talk to somebody and have an annual review. millennials want retial-time feedback, weekly feedback. >> they have to be in a position of working to appease a lot of constituencies is that what you're saying? >> have to be good at multistakeholder communications. the other piece is now innovation. innovation is now a demand to the ceo. boards, shareholders used to be scare of risk of innovation, what are you doing? now you can stlit it's a demand to be enabled, fast thinking, get around this digital environment. it's now ingrained. >> is there any ceo that can say he or she is adept at technological change. it's evolving so fast nobody has the experience.

because things didn't exist. >> so true. and even in the board rooms which is scarier because people used to have the digital expert but are you talking hardware, cloud, software. you need to think about a whole different range of skill sets that are not there and you better start hiring. but from where? >> george i'll admit i have a bit of an unfair bias. head hunters get know people, schmooze with people and becomes a game of who you know and not what you know. what are you doing? what are your looking for? how is this not an old boys network. >> that was the 1970s. that was great back in the golf course days. i probably logged nine holes in three years. that's one abuse. real thing you look for competencies. you look what are the competencies. take your digital, brian, that you're talking about. where do you get this? you need to find people that had competencies in things they did

in their past. where we get paid for when we do 500 ceo searches a year we look at potential. there are indicators and markers. >> like what? >> communication. innovation. financial savvy. >> give us some real world examples of what that mean. what is on somebody's specific resume which makes him or her a good candidate tube ceo? >> so one of the things you want to look at is their track record of their performance. right? but then how are they good -- are they good at just managing up or manage with subordinates. do they have partnerships. >> how do you find that out. when somebody talks to you they will tell you they are great at all of this. >> becky, it's not on the golf course. so what you really do you have to do thorough reference checking. >> people who worked underneath these people. >> we do a two to three our interview with these folks. it's not like i, i. the person that turns i, i,

that's a real red flag. >> that turns you off? >> right away. >> give us an example of a ceo question. what do you ask becky. not the television network, a random three letter combination. >> what are your best accomplishments and how did you do it. then we be quiet. i want you to weave the whole answer through. >> we want you to answer. >> i'm not looking for a job. >> what's your worst quality? i'm a perfectionist. i'm always on time. >> in term of the current environment you mentioned there are activists out tlarks theme in the last several years. another theme is ceos not wanting to take financial risks. how do you tell what's going to be rewarded in the future. in other words do you want to get somebody who has been good at buying back stock when in fact that's not the thing for an individual company? exactly. you have to think where the company is in the cycle of

growth. some of these companies are hotels. looking for reits. they won't get the october cupa they are lookingbackground? i'd probably want a cfo. >> i know there's a lot of people you can't talk about. you have a lot of clients and you can't obviously discuss those. but take, for example, somebody who's good at the new rates, somebody who's not your client and somebody who maybe got pushed out recently and you think it's with good cause. >> it's not fair to pick on one individual, but what you want to think about is let's look at the cable operators coming forward, right? they're getting disintegrated by the netflix and hulus of the world and you're going to have all these programming fees based on the subscriber and all of a sudden the subscriber is not there. you want to look at how they're going to handle the economy or

biotechs. are they going to be able to deal with the pricing that's eroding fast. >> what's the worst? >> hubris, kiss of death. >> doesn't it take hubris to get to that point? there's got to be arrogance. >> that was the old pyramid. >> the line between confidence and arrogance, i'm told, is somewhat narrow. >> i actually think it's somewhat changed. it's somewhat of a dinosaur. >> i'm a dinosaur? would somebody get me a tar pit online? >> the real ceo is one who can communicate, puts the goals first. and you can see that now. steve estabrook and mcdonald's, it's about technology. it's not about him. you don't see commercials about him on the front. >> no, it's true. he's done a great job. george, thank you so much for

coming in today. >> thank you. when we return, jim cramer is going to join us. we're going to talk about today's top stories including the energy names and what he makes of this little three-day run we might have with the stockmarket. we're back with more on the "squawk box" right after this. we needed 30 new hires for our call center.

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all right. let's get down to the nyse. jim cramer. what is key for you? >> all right. look. we have oil inventories. look. it is just vital that oil stay up because there really isn't any other thing that i think drives things more than the kmotty market. look. i felt the saudi news was bad for oil. what it says is we're going to maintain production and we'll boost it. exactly opposite of what you want to hear. but you know what? this market wants to believe oil's going higher and we're in that period where people feel good about it. i was listening to rick. rick is obviously saying we might have many more fed rate hikes off of this -- the ppi number. it's not a good scenario but it is a hopes scenario and when you see glencore and freeport and chenier and buffett buying kmi,

people are going to want to believe. >> jim cramer, we're going to see you and the entire team. it's going go a great interview. >> look out, ververizon. a lot of bad talk. >> by bad talk, that means trash talk. >> that's going to be fiery. a lack of sleep may have an impact on how much you're using social media. we've got more details and everything right after this. stick around. know your financial plan

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welcome back, everybody. there may be a link between lack of sleep and social media usage. the less sleep people got, the more irritable they became and the more likely they were to shift between computer screens and have heightened distractability. they looked at gender, age, and course load. back to your markets right now, the markets are indicating a higher open for the dow. we could have a three-day gain for the dow, which would be the first time, guys, that has happened this year. i know it's not much to brag about or whatever, but still given this year, not too bad. >> start somewhere.

we had a big run the end of january. >> thanks for that. >> thank you, guys, both for joining us here today. it's a great to see you. we'll see you later today, brian. >> thank you. >> that does it for us today. make sure you join us tomorrow. right now it's time for "squawk on the street." ♪ just move on up move on up ♪ good wednesday morning. welcome back to "squawk on the street." i'm carl quintanilla with david faber and jim cramer. stocks up. wholesale prices run hot. the biggest beat in more than a year. europe with some decent gains despite mild data in the uk and the ppi number pushing the ten-year back above 18 for the first time in two weeks. oil is trying to get reacquainted with 30. big